A SUNNY PLACE FOR SHADY PEOPLE

Ashot Ghulyan is the first to appear. He hurries across the square, a few pensive looks around him as he goes. He was followed by a heavy-set woman, dressed in the style of Margaret Thatcher, who held her handbag tightly as she raced over the square, walking far too quickly for a lady in heels.

Next came the unmistakable figure of Arayik Harutyunyan, founder of the Free Motherland Party, largest grouping in the National Assembly. Harutyunyan had served as Prime Minister in the territory for a decade. In his first speech as Premier Minister he promised to revive the economy, bolster democracy and seek social justice, including a ‘fight against the corruption, protectionism, clan system and social evil’.

Others followed them over the next hour, beating a well-trodden path to the nearest bank.

Money, politics and power are inextricably linked. Money scandals emerged early in United States history. In fact, Alexander Hamilton, the first Secretary of the Treasury, was accused repeatedly of abusing his power to enrich friends.515 In more contemporary times, Britain had its cash-for-questions516 and cash-for- honours517 troubles, France the Bettencourt Affair that enveloped President Nicolas Sarkozy518 and Germany had its scandalous President Christian Wulff.519

The world’s leading nations have all had their political casualties from financial impropriety. It is not just the likes of Viktor Bout, Teodoro Obiang Nguema Mbasogo and Silvio Berlusconi. Nor indeed only Robert Kocharyan or Serzh Sargsyan, although the latter pair’s solecism may rank among the world’s most pervasive when calculated according to national GDP, alongside the likes of Mohamed Suharto, Ferdinand Marcos and Zine Al-Abidine Ben Ali.

Across the nation, politicians have taken their lead from Kocharyan and Sargsyan.

My new friend, Mr. Aboutiounian, had told me to hang around in Stepanakert’s Renaissance Square on most days, at about 3 in the afternoon.

It is starter’s orders at 3 o’clock.

Some 50 yards stretch between the heavy wooden doors of the National Assembly across the steps that lead up to the headquarters of Artsakhbank. Ghulyan, the Margaret Thatcher lookalike and Harutyunyan are followed by Arpat Avanesyan, who chairs the legislature’s Finance Committee.

Money is certainly on Avanesyan’s mind on this particular day. As he scurries over the square he is holding in his hand an envelope stuffed full of it.

The Bahamas, Cayman Islands, Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, Marshall Islands, Nauru, Niue, Panama, Philippines, Russia, St. Kitts and Nevis and St. Vincent and the Grenadines. The list of ‘non-cooperative’ nations drawn up by the Financial Action Task Force, a body created in 1989 by the Group of Seven to fight money laundering, does not hold any great surprises.520

In 2000, governments decided to further pressure these criminal centres which transform corrupt money into legal assets, because the sheer volume of transactions by drug cartels, mafias and corrupt officials had grown to at least $600 billion a year.521

Despite the Group of Seven’s best efforts, the figure has grown out of control since then. The United Nations Office on Drugs and Crime determined illicit funds generated by drug trafficking and organised crimes at 3.6% of global GDP in 2009, with 2.7% – some $1.6 trillion – being laundered.522

The phrase ‘tax haven’ often conjures up images of a leafy palm tree-studded island nation with an ‘anything goes’ attitude to accepting bank deposits – “sunny places for shady people,” as author Nicholas Shaxson calls them.523 But these classical tax havens now have a lot of company – despite recent progress, there are still plenty of places all over the world where one can stash money without scrutiny.

In all the above-mentioned nations, governments have created an open legislative framework, with the lightest touch possible of oversight. The world’s dubious bankers have done the rest, filling in the grey areas with a ‘rats nest’ of opaque mechanisms that allow the world’s criminal detritus, from drugs traffickers to corrupt government officials, freedom to operate unhindered. An opacity of financial information has built ‘secrecy jurisdictions’, which often facilitate many more problems than just tax evasion.

The Financial Action Task Force and United Nations Office on Drugs and Crime have their hands full with established nations such as Lebanon, Philippines and Russia, even beyond the more outlying places of concern, such as St. Kitts and Nevis. Barely given oversight are the places that sit beyond the reach of legitimate law and order oversight, the likes of Abkhazia, Transnistria, Western Sahara and Somaliland.

The banking system in Nagorno-Karabakh acts as an entity that is regulated by the Central Bank of Armenia.524 Therefore, all financial transactions are subject to laws and regulations common to both Armenia and authorities in the breakaway region.

For its part, Yerevan, Stepanakert’s political, economic and ideological Godfather, can hardly be considered a benevolent influence. Armenia ranked 95th out of 168 countries that were evaluated in Transparency International’s 2015 Corruption Perceptions Index.525 Its ranking has barely changed over the past half decade and Armenia was ranked negatively across the board, along with Moldova, Russia, Serbia, Lithuania, Ukraine and Bosnia and Herzegovina.

In 2016, a panel of Council of Europe experts identified significant weaknesses in the investigation and prosecution of money laundering in Armenia and urged immediate action to ensure that law enforcement efforts were significantly improved. They weren’t.

MONEYVAL – the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism – provided a disastrous progress report on the almost non-existent efforts by Yerevan to address international standards on money laundering and terrorist financing,526 reported elsewhere in this chapter.

Transparency International noted in its ‘Anti-Corruption Helpdesk’ report of 2013: Entrenched corruption, strong patronage networks, a lack of clear separation between private enterprise and public office, as well as the overlap between political and business elites render the implementation of anti-corruption efforts relatively inefficient. What is more, the governance deficiencies of Armenia are made worse by and, at the same time, feed a pervasive political apathy and cynicism on the part of citizens, who do not see an impactful role for themselves in the fight against corruption. A largely controlled media environment further aggravates this situation.527

Armenia’s abysmal status, a nation riddled with corruption and itself operating for the most part as a secret jurisdiction, hardly qualifies as an arbiter to oversee activities in a neighbouring breakaway region that already sits in a geopolitical grey area. Yerevan attempts to provide the same veneer of respectable oversight to its illegal satellite as the aforementioned government highlighted by the Group of Seven.

In reality, however, this papers over a shrieking reality – in a world of financial grey areas, Nagorno-Karabakh could have almost been constructed to serve this purpose.

Stepanakert’s ‘Minister of Industry’ Hakob Ghahramanyan has stated that the administration there has no independent monetary policy528 and views itself as governed by Armenian’s financial policy and systems. Armenia’s national currency, the Dram, is illegally used as national tender,529 in what is legally part of another country, while the Central Bank of Armenia states that Nagorno- Karabakh is “part of the economic territory of Armenia, because the Dram is the legal tender there and in all banking institutions.”530

Armenia’s banks in Nagorno-Karabakh are licensed and supervised by the Central Bank of Armenia, according to Head of Financial Monitoring Centre of Central Bank of Armenia, Daniel Azatyan. All financial entities operating in Nagorno-Karabakh, including branches of Armenian financial institutions, submit reports on their activities to the Central Bank.531

The Central Bank of Armenia stresses and asserts its fiscal ‘ownership’ of the territory.

With that in mind, this is worth examining.

As parliamentary Finance Committee head Arpat Avanesyan ploughs past me, he races up the few steps that lead into Artsakhbank and at the counter he already has his brown envelope open.

Brown envelopes are something of a cliché when it comes to fiscal chicanery. You would think it was such a prosaism that those involved would use another colour.

Regular as clockwork, Avanesyan and others emerge from the National Assembly bearing these brown envelopes. Employees in Artsakhbank know not to ask questions.

The conclusion one can reach is quite obvious.

Nagorno-Karabakh is territory that sits somewhat beyond the reach of international monitoring due to its political status, and a grey area armed with a banking system that works outside of international financial oversight due to that status. While Armenian banks operating in the territory do have constraints due to international controls, their activities in Nagorno-Karabakh remain decidedly off-the-grid.

As one American official, whose professional career has involved dealing with the ramifications of this system, commented to this author: “We are looking at a Liechtenstein on steroids.

“Banks, companies, trusts, or other financial actors are allowed to accept money from basically anywhere without reporting it to the authorities, or noting from where it originates, or from where it is controlled. Little information is required, as it comes with the tacit knowledge that somewhere along the line, someone in authority has to take a cut, for looking the other way, or as partners in the enterprise.

“Banks or other entities are not required to disclose it and there is no mechanism to force them to do so. It makes the Cayman Islands look almost rigorous by comparison.”

It is a warm October morning in Stepanakert as we leave our hotel and set out to test the system we have heard so much about. A swathe of Armenian banks have opened outposts here, among them Converse Bank, Ardshinbank, Armbusinessbank, Armeconombank, Araratbank, Unibank and Ameriabank.

We make for Artsakhbank.

Established in February 1996 and licensed by the Central Bank of Armenia, Artsakhbank has its headquarters in Yerevan532 but has quickly fanned out across Nagorno-Karabakh. Artsakhbank is a member of SWIFT International and an affiliate member of Europay-Mastercard International payment system.533 Both somewhat confer legitimacy.

The bank’s major shareholder is the Armenia-registered Business Fund of Armenia (40.7%). Ethnic Armenians, Vartan Sirmakes (a Swiss passport holder) and Hrach Kaprielyan (an American passport holder), are both significantly involved.534

Sirmakes holds the overwhelming say over the business in addition to his personal stake. He also owns the Business Fund of Armenia. Kaprielyan serves as chairman of the bank’s Executive Board and all members of the board are Armenian.

Several days later we would see the aforementioned succession of legislators pour across the square with their brown envelopes to the well-appointed premises of Artsakhbank. Bedecked in a smart green and grey corporate colour scheme, the bank has a professional edge. And indeed the company is slick in what it does.

We enter the bank and introduce ourselves to the somewhat abrupt teller.

We are Italian and British passport holders. Non-residents. On holiday in Nagorno-Karabakh. We have $100,000 cash. We wish to open an account.

Within a few seconds a second man appears on our side of the counter, smiling broadly and asking us to accompany him to a “VIP Club” located nearby on Vazgen Sargsyan Street, near the town’s Chess Club.

It takes just a few minutes to get there, and no time at all to be ushered into an apparently unmarked office on the first floor where we were greeted by a gentleman who would unwittingly become our guide to the fiscal world in Stepanakert. Mr.Aboutiounian.

Around 50 years old, dressed in the smartest suit we would see during our time in the town, and well shaven, another unusual quirk in a town where one or two days stubble growth seems to be fashionable.

It will take, he promises, just 72 hours. Our cash would land in an account of our choice anywhere in the world.

Our request to use Jersey, a tax haven located between England and France, as a final destination point for our funds is no problem at all.

Assisted by promises of regular business from my side, his tongue loosens. Alarmingly. He assures us that the administration in Stepanakert is part of the whole grey economy, which is when we learn about the regular 3pm cash scramble outside the National Assembly. He talks candidly about the Iranians, Georgians, Russians and Cypriots, all of whom he regularly entertains in his nondescript office.

The business of funnelling large sums of cash out of the territory, he says, is booming.

Over ensuing days we pay visits to various other banks in Stepanakert. Next to Converse Bank, a more Armenia-oriented establishment which has 34 branches, 14 in Yerevan, 19 across that country, and only one in Stepanakert.535

It is not as obvious a choice as Artsakhbank to support our particular needs, but the concierge at our hotel, with a $100 in his hand and a knowing wink when I explain our requirements, recommends we pay a visit. Helpfully both Converse Bank’s branch, and its less-well-branded backroom office, are both located close to Vazgen Sargsyan Street, ironically named after the slain Armenian Prime Minister, whose murder in Parliament was tangled up in the muddy waters of Yerevan’s political finance.

Elsewhere in Stepanakert we encounter more establishments willing to do business with a couple of likely looking foreigners bearing cash. Not one asked where this cash was from and took any more than a cursory look at the credentials of my companion and I.

It would be wrong to suggest that Mr. Aboutiounian at Artsakhbank and his fellow ‘investment officers’ elsewhere in Stepanakert are unique in the world. In fact they are surprisingly common. Despite lessons supposedly learned in the wake of the global economic meltdown, across the world’s financial capitals, and empowered by an intransigent establishment, there continue to be central banks who shy away from tightening monetary regulation. Taking their lead from this, there are many global banks who seem prepared to cross the line.

In December 2017, Britain’s The Daily Telegraph reported that: United States regulators described it as the “sword of Damocles” hanging over HSBC. Britain’s biggest lender had to pay a $1.9 billion (£1.4 billion) fine in 2012 for helping drug cartels launder money in Mexico and for contravening sanctions to do business with Iran. Alongside the payout, HSBC agreed a five-year deferred prosecution agreement with the United States Department of Justice under which it promised “to clean up its act”.536

Earlier in 2018 Singapore fined Standard Chartered entities $4.9 million for money laundering537 while, Down Under, in 2018 the Commonwealth Bank of Australia paid the biggest corporate fine in the country’s history for failings that allowed drug gangs to launder money.538

The likes of Deutsche Bank539 and BNP Paribas540 have also been hit by big penalties for similar offences. Over a nine-year period one branch of one bank –

Danske Bank in Estonia – took on thousands of suspicious customers, responsible for £180 billion of illicit transactions.541

Law enforcement, it seems, will always be one step behind criminal money- launderers, following cryptic transaction records and grasping at shadows rather than seeing where money is actually hidden. Of course, it does not help that some of the world’s biggest banking names – let alone minnows operating out of Nagorno-Karabakh – are so eager to support global crime.

The United States Department of State says of money laundering that:

International recognition of, and action against, the threat posed by money laundering continue to increase. Money laundering poses international and national security threats through corruption of officials and legal systems, undermines free enterprise by crowding out the private sector, and threatens the financial stability of countries and the international free flow of capital...

Transnational organised crime groups have long relied on criminal proceeds to fund and expand their operations, and were pioneers in using corporate structures to commingle funds to disguise their origin.542

In Nagorno-Karabakh, those transnational organised crime groups have found an easily manipulated banking system that is somewhat off-the-grid, with legislative oversight provided illegally by a second party nation, one that has its own issues.

In its 2015 report, MONEYVAL states of Yerevan that: Armenia has a broadly sound legal and institutional framework to combat money laundering and financing of terrorism. Armenia’s level of technical compliance is generally high with respect to a large majority of Financial Action Task Force recommendations.543

The Council of Europe’s MONEYVAL group had an assessment team in Yerevan between May 25th to June 6th, 2015, and were satisfied with some aspects. Yet in the Executive Summary of its report they noted: There have never been any investigations, prosecutions and convictions... The level of foreign proceeds introduced into the Armenian financial system could not be determined with certainty, since little information was made available to the evaluation team.

However, Suspicious Transaction Reporter information suggests that attempts to launder proceeds from cybercrime and other Information Computer Technology- related crime committed outside Armenia are not uncommon... Armenia should not limit its assessment of the Money Laundering threat to the analysis of convictions. Instead, consideration should be given to the magnitude and significance of the overall criminal activity faced by Armenia, be it domestic or foreign.544

MONEYVAL’s experts spent less than two weeks on the ground in Yerevan in which to ascertain the nation’s ability, or even willingness, to meet the corrosive challenges presented by money laundering. Their report provided a mixed bag.

Debate on Armenia’s weak compliance continued within the Council of Europe and in January 2016, Turkey’s Hürriyet Daily News went on to report that: The Council of Europe has urged Armenia to develop an effective national policy to investigate and prosecute money laundering in the country, as its experts have identified significant weaknesses in this area. The experts put forth significant weaknesses in the investigation and prosecution of money laundering in Armenia and have urged the authorities to take immediate action to ensure that law enforcement efforts are fully commensurate with the money laundering risks faced by the country...545

According to those familiar with the situation, it can best be summarised as the nation possessing something of a legal framework to deal with money laundering, but there being no political desire to assert that law in any more than a cursory fashion.

Given that the biggest generators of cash and assets in Armenia are the nation’s two big political beasts, former Presidents Robert Kocharyan and Serzh Sargsyan, each billionaires, it is perhaps no surprise. Neither is their desire to hide their activities. In 2009, then United States Ambassador in Yerevan, Marie L. Yovanovitch reported to the Department of State in ‘The Business of politics: Leading enterprises of the political elites’. When released publicly by Julian Assange and his WikiLeaks organisation, embarrassingly Yovanovitch’s words read: The murky ownership of Armenia’s major industry clusters is a hidden driver of Armenian politics and elites’ inter-relationships... Broadly speaking, almost all the most lucrative sectors and enterprises are divided into one of two major political/economic pyramids: one headed by President Serzh Sargsyan and the other by ex-President Robert Kocharyan.546

If Armenia has been considered a fiefdom by Kocharyan and Sargsyan, then Nagorno-Karabakh has served as little more than a province in their territory. It is this attitude that has given rise to the use of Stepanakert and its banking system as a pliable arm of their national enterprise.

Because of the status of the territory, MONEYVAL and other major global financial institutions and bodies are forced to remain away from Nagorno- Karabakh. They are prevented from dealing with Stepanakert via the Central Bank of Azerbaijan, under international law the competent authority. Neither can assessments be undertaken via the Central Bank of Armenia, as Yerevan exercises its controls over Nagorno-Karabakh illegally.

The banking sector in Nagorno-Karabakh falls through the cracks in international law and oversight. And that suits the most influential players in Yerevan and Stepanakert, along with those who operate under their purview.

As one banker who cooperated on this title states: “Nagorno-Karabakh represents a blank cheque. Not only a revenue generator in its own right. The territory provides Yerevan with the proverbial off-the-books set of accounts, a place where money can be stashed, and from where funds can be laundered abroad and trickle into private accounts in Switzerland, Panama and the like.”

As part of its work across the continent, MONEYVAL can visit Armenia and do its assessment work. Not so Nagorno-Karabakh, a place where the Council of Europe cannot tread, an occupied territory legally belonging to another member state and therefore out of bounds.

Perhaps uniquely, Nagorno-Karabakh is a European financial haven that is all but beyond the reach of the United States Federal Reserve, the Bank of England, signatories to the Basel Committee on Banking Supervision, and others who would seek to bring the global banking system to heel.

As Ghulyan, Harutyunyan and Avanesyan can testify. It is, indeed, a sunny place for shady people.